New protected ILS / LDI investment launched by Dragon Fire Capital

23rd October 2015 - Author: Artemis

A new insurance-linked investment product has been launched by global alternative investment manager Dragon Fire Capital. The product sits at the convergence of insurance-linked securities (ILS) and liability-driven investments (LDI), providing tailored relatively uncorrelated returns. Dragon Fire Capital aims to “innovate at the convergence of ILS and LDI”, with life insurance linked LDI investments an area that the asset manager sees as ripe for the same investors who allocate to the ILS and reinsurance-linked investments space.

The investment products offered by Dragon Fire Capital are private placements and provide global institutional and high-net worth investors with access to privately placed portfolios of life policy linked LDI investments, which are structured and issued through a Luxembourg-based vehicle named Dragon Fire Capital Holdings SA.

Products offered or managed by Dragon Fire Capital are protected and fully asset-backed and the manager tailor-makes each opportunity to the exact specifications of the end investors.

The products are structured as specialist debt instruments, typically with a $100m and upwards nominal size, with the underlying assets being a securitised pool of life policies sourced by Dragon Fire Capital.

Each investment opportunity is kept legally separate and never commingled with the products of their other investors, thanks to the segregated nature of the Luxembourg vehicle.

The investments are also tailored to suit the investors’ risk appetite, with protection provided by a re/insurance company who remove the longevity risk, beyond a certain point, from the pool of policies. The level of protection required is also down to the investors.

Dragon Fire Capital is led by Mark Beck, a veteran of ILS investing on the life side. His team consists of professionals with decades of ILS, capital markets, asset management and pension fund experience.

Netherlands-based Mario van den Hurk noted that “institutional and HNWI investors can now implement a comprehensive LDI strategy with a product that is designed to realize those very objectives”.

The asset manager believes that it has created an offering that is truly unique in the ILS space, having spent a significant amount of research and development creating something tailored to investors who have to plan for future known liabilities, regardless of their size.

Dragon Fire Capital says that it is “imperative for the ILS asset class to maintain the highest levels of transparency and a steadfast fiduciary duty to its investors,” and believes in “collaborative investor relations” to provide visibility of its strategies.

The underlying strategy focuses on “structuring and strengthening an asset-backed securitized portfolio,” with the goal of ensuring that “solid protected returns are achieved with minimal volatility and with no loss to capital.”

Dragon Fire Capital offers Shariah compliant products as well, which could provide a way to break into the Islamic finance market.

Targeting an LDI product with an ILS underlying asset, linked to life insurance policies, and also with protection embedded, is an interesting approach. It perhaps meets the needs of an increasingly broad set of investors, who appreciate the low-correlation of an ILS investment strategy but who have future liabilities they would like to work to offset.